UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended August 31, 1996.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-7578
ELECTRO-CATHETER CORPORATION
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1733406
(State of Incorporation) (I.R.S. Employer ID Number)
2100 Felver Court, Rahway, New Jersey 07065
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number including Area Code: 908-382-5600
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT
Common Stock
$.10 par value per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and ask prices of such
stock, as of a specified date within 60 days prior to the date of filing.
The aggregate market value of the Registrant's common stock, $.10 par
value, held by non-affiliates as of November 18, 1996 is $4,152,136.
As of November 18, 1996, the number of shares outstanding of the
Registrant's common stock was 6,373,711 shares, $.10 par value.
<PAGE>
PART I
Item 1. Business
General
Electro-Catheter Corporation ("Company") is engaged in the business of
developing, manufacturing and marketing products for hospitals and physicians.
The majority of these products are utilized in connection with illnesses of the
heart and circulatory system and make use of catheters and related devices. The
Company was incorporated in New Jersey in 1961. The Company has targeted
electrophysiology as its focal area for future growth, but intends to maintain
and develop products for the emergency care, cardiac surgery, invasive and
non-invasive cardiology and invasive radiology markets.
The Company is also seeking to expand its Original Equipment Manufacturing
("OEM") business to capitalize on its catheter technology expertise and its
manufacturing capabilities. In September 1996, the Company reached a verbal
agreement-in-principle with another company to perform research and development
and production for them for a period of one year for a monthly fee of $150,000.
This arrangement has not been reduced to writing and remains non-binding.
Additionally, in October 1996, the Company reached an agreement to license
certain of its technology to another firm in the medical industry that is in a
market segment in which the Company does not participate; this agreement is
currently verbal and has not been finalized. These agreements include the
opportunity to manufacture products which would increase plant utilization.
There can be no assurance that the Company will receive the manufacturing rights
to these products or be able to manufacture them.
The Company operates in one business segment, and markets its products
worldwide. Export sales continued to increase and were approximately $2,324,000
in 1996, $1,964,000 in 1995 and $1,718,000 in 1994, representing approximately
32%, 27% and 24% of net sales for the years 1996, 1995 and 1994, respectively.
Products
The Company produces a wide range of catheter products intended to be
utilized by doctors and other trained hospital personnel for diagnostic or
therapeutic purposes. Catheters are hollow tubes that can be passed through
veins, arteries and other anatomical passageways. The Company considers the
market within which it sells its present and proposed products as a single
industry segment.
The selling prices for the products marketed by the Company typically range
from thirty-five dollars to five hundred dollars.
Electrophysiology Catheters
The field of cardiac electrophysiology (EP) is one of the most rapidly
growing areas of medical technology. The development of transcatheter diagnosis
of the heart's conduction system and transcatheter correction of certain
conduction dysfunctions have increasingly attracted the attention of
cardiologists. The Company believes that its extensive experience in pacing and
mapping the heart's conduction system, as well as designing and manufacturing
cardiovascular catheters, place the Company in a position to take advantage of
this developing market.
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Cardiac electrophysiology is the study of the electrical system of the
heart. Cardiac electrophysiologists are concerned with electrical disorders in
the heart, their etiology, diagnosis and treatment. The medical problems on
which cardiac electrophysiologists focus are conduction problems of the heart,
which include tachyarrhythmic episodes which can lead to sudden cardiac death.
The Company's diagnostic catheters are called the Detector, Investigator
and Cloverleaf EP catheters and each line has its unique characteristics
requested by physicians that desire different handling features. The Genesis
line of steerable catheters provides the physicians with a more sophisticated
mapping tool for difficult diagnostic procedures. These catheters are available
in many curve and electrode configurations.
The Company markets its Circuit Breaker steerable catheters with
temperature control for catheter ablation for international distribution only.
These catheters are compatible with most radiofrequency generators. The Company
expects to begin clinical trials in the U.S. in 1997 in order to seek approval
to market these catheters domestically.
Pacing and Monitoring Catheters
The Company's line of monitoring catheters are made of flexible radiopaque
materials which are visible in use through fluoroscopy. The catheters have a
variety of tips, shapes and internal configurations and can be manipulated by an
experienced physician through the anatomy to the desired location. Through the
use of these catheters, electrophysiological data, pressure and flow readings
and blood samples may be obtained. In addition, the Company's catheters may be
utilized as conduits for the injection of radiopaque materials into the
bloodstream to permit fluoroscopic observation of abnormalities in the
vasculature.
Monitoring catheters are marketed under the following names:Baltherm(R)Flow
Directed Balloon Catheters, Pacewedge(R) Balloon Guided Catheters and
Balwedge(R) Catheters.
The Company's pacing catheters are fabricated from a number of materials
and frequently consist of an electrode-bearing tube. The tube is guided into the
body and the electrode is delivered through the venous system to the heart where
it is then used for pacing. This procedure involves the delivery to the heart
muscle, from a source outside the body, of an electrical stimulus causing
contractions like the natural heartbeat. Such pacing is necessary where there is
a conduction blockage in the heart causing the heart to beat at a slow or
irregular rate.
One of the pacing catheters manufactured by the Company is the
Balectrode(R) Bipolar Pacing Probe. With this product, both the amount of
manipulation of the catheter required to cause the stimulating electrode to be
positioned in the proper location of the heart and the time required from the
commencement of the procedure until it is completed, are substantially less
than they would be if a non-balloon catheter were used as the delivery system.
The pacing products usually are sold in kits containing the catheter, a
placement needle, connectors and various other devices. These kits are sold
under various names, including the following: Balectrode(R) Flow-Directed
Temporary Pacing Kit, Silicore(R) Semi-Floating Pacing Kit and Multipace.
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Multi-Purpose Catheters
Multi-Purpose catheters have features or uses which, under certain
circumstances, result in the combination of pacing and monitoring functions.
Further, the Company manufactures certain electrode-bearing catheters used to
make electrical measurements within the heart and provide electrical stimulation
for both therapeutic and diagnostic purposes.
Transthoracic Pacing Stylet
The Company has developed and patented a product for transthoracic pacing
and intra-cardiac medication which it is marketing under the name PaceJector(R).
The pacing electrode is delivered to the heart directly through the chest wall
rather than through the veins. The technique of transthoracic pacing for
emergency treatment of cardiac arrest and certain types of life-threatening
heart rhythms was pioneered by the Company.
Drainage Catheters
Although the Company's principal activities have been in the cardiovascular
area, it currently is manufacturing and marketing the Elecath(R)One Step(TM)
Fluid Drainage System which is used for draining fluid collections from
various locations in the body. This system consists of a catheter, composed of
a unique formulation developed by the Company, mounted on a simple penetration
apparatus. In the Company's opinion, the product is useful to many physicians,
in addition to radiologists, and results in more complete and safer drainage.
Production
The Company manufactures its products in a 25,000 square foot facility it
owns and another 10,000 square foot facility which it leases. The Company
believes that these facilities have sufficient capacity to meet the Company's
anticipated catheter needs for the next two years. The manufacturing of
catheters is a complex process and each catheter is assembled and tested. The
Company designs its catheters and manufactures a portion of the tubing,
balloons, and many components with tooling and formulations developed by it or
especially for it. The Company maintains facilities to manufacture tubing and
balloons and for the production of catheters in the unique configurations
required for their use. In addition, where more convenient or when the level of
sophistication warrants it, the Company uses outside suppliers for certain
components. The Company contracts with a third party for the performance of
sterilization. Although most components and processes are available from more
than one vendor, certain components and processes are manufactured or provided
by single vendors, some involving molds owned by the Company. The Company
attempts to maintain an adequate supply of the components on hand in order to
minimize any supply interruption from single source vendors to allow for time to
find a replacement. There can be no assurance that the Company's ability to
manufacture certain products will not be materially affected by single source
vendors.
Research and Development
The Company's research and development activities are devoted primarily to
the design and development of new products and enhancements of existing
products. For the three years ended August 31, 1996, the Company incurred
aggregate direct expenses of approximately $3,154,000 for research and
development activities, including new product development, of which
approximately $1,010,000 was attributable to fiscal year 1996, $932,000 to
fiscal year 1995, and $1,212,000 to fiscal year 1994. All of such activities
were sponsored by the Company. The major portion of such expenses was related
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to salaries and other expenses of personnel employed on a regular basis in
research and development efforts. During 1996, the Company received an advance
of $300,000 from an unrelated company to perform research and development and
pre-production planning for which services the Company recognized $155,707 in
revenues. The costs associated with these revenues are shown in cost of sales
and, as such, are not included in research and development expenses. In
September 1996, the Company reached an agreement in principle to perform
research and development and production for the same company for a period of one
year for a monthly fee of $150,000. The details of this agreement have yet to be
finalized.
Sales and Marketing
The Company markets and sells its products domestically through its own
sales force. At November 18, 1996, the Company employed 5 salespersons in the
field and a home office staff of marketing and sales support of 6 people. The
Company also employs an International Marketing Manager based in Europe on an
independent contractor basis. The Company had one significant distributor in the
United States which was responsible for sales in all or part of thirteen Eastern
states plus the District of Columbia. This distributor accounted for
approximately 11% and 17% of net sales for the years 1995 and 1994,
respectively. The Company terminated its arrangement with this distributor on
May 31, 1995 and the Company now markets its products directly in this
territory. As such, there were no sales to this distributor in 1996. The
principal customers for the Company's products are hospitals whose purchasing
decisions are determined on the basis of assessment of the products by the
physicians. No customer accounted for more than ten percent of the Company's net
revenues for 1996. International markets were serviced by a network of
independent distributors.
Advertising of the Company's products consists primarily of displays at
medical conventions and meetings, advertisements in medical journals and direct
mail. The Company also cooperates in the publication of technical papers written
by medical authorities in areas relating to the Company's products.
Personnel
At November 18, 1996, the Company had approximately 98 full-time employees.
Of the total employees, 64 were engaged in manufacturing and quality control, 10
in general administration and executive activities, 13 in engineering and
research and development, and 11 in sales and marketing. The Company is not a
party to any collective bargaining agreement and considers its relations with
its employees to be good.
Backlog
At October 31, 1996, the Company had a backlog of orders for its products
which aggregated approximately $389,000, as compared to approximately $692,000
at October 31, 1995. The Company typically does not operate with a significant
backlog. The majority of product shipments in a quarter relate to orders
received in that quarter. The Company's actual product shipments depend on its
production capacity, manufacturing yields and component availability, among
other factors.
5
<PAGE>
Competition
The medical technology industry is a highly competitive field, and the
Company competes with many other companies on current products and products in
the development stages. Many of these competitors have significantly greater
financial, marketing, sales, distribution and technical resources than the
Company. Rapid technological advances by the Company's competitors could at any
time require that the Company redesign a portion of its product line.
Accordingly, there can be no assurance as to the success of the Company's
products in competition with such companies.
The Company's older products compete primarily with those of larger
companies that have greater resources and better distribution capabilities. The
current principal basis of competition in these markets is price. The Company's
limited resources make it less capable than larger competitors of offering
aggressive pricing to meet competition. In addition, certain customers purchase
catheters in blanket contracts which include products offered by the Company's
larger competitors but not by the Company. For these reasons, the Company has
not been able to compete effectively during recent years in the market for
non-EP products.
The electrophysiology market is also highly competitive and competition is
expected to increase. These competitors currently include USCI, a division of
C.R. Bard, Inc.; Mansfield and EP Technologies, divisions of Boston Scientific
Corporation; CardioRhythm, Inc., a division of Medtronic, Inc.; Cordis-Webster
Laboratories, a division of Johnson & Johnson, Inc. and Daig Corporation, a
division of St. Jude Medical, Inc. These companies are more capable of offering
a broader range of products to the cardiologist. The Company's ability to
compete effectively in the future, could be dependent upon broadening its range
of products and/or an alliance with another company. The Company's
electrophysiology products compete with other treatments, including prescription
drugs, implantable cardiac defibrillators and open heart surgery.
The Company's catheter ablation product is not yet approved for marketing
in the U.S., but competitors have developed products, specifically for use in
catheter ablation, which have approval. The Company plans to begin its clinical
trials for ablation in 1997 to obtain its approval. Because this is a new and
developing market, the primary competitive factors are technical superiority,
financial resources, the timing of regulatory approval, commercial introduction
and quality. The Company's competitive position also depends on its ability to
attract and retain qualified personnel, develop effective proprietary products,
implement production and marketing plans and secure sufficient capital
resources. The Company hopes that it can effectively compete in this market.
Patents and New Products
The Company's policy is to protect its proprietary position by, among other
methods, filing United States and select foreign patent applications to protect
the technology that is important to the development of the business. Although
the Company holds patents or has patents pending related to several of its
products, it believes that its business as a whole is not or will not be
materially dependent upon patent protection. However, the Company will continue
to seek such patents as it deems advisable to protect its research and
development efforts and to market its products. The Company believes that it is
not infringing on any other party's patent. However, there can be no assurance
that current and potential competitors will not file applications or apply for
patents or additional proprietary rights relating to materials or processes used
by the Company.
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<PAGE>
The Company develops new products as a result of its own analysis of the
needs of the market which it serves and as a result of needs perceived by
physicians and researchers who work with the Company on the design and
development of the devices and systems needed by them. In certain instances, the
Company pays the cooperating physician or researcher a royalty based upon the
revenues derived from the sales of the product to others.
The Company also relies upon technical know-how and continuing
technological innovation to develop and maintain its position in the market and
believes that the success of its operations will depend largely upon such
know-how and innovation. The Company requires employees and consultants to
execute appropriate confidentiality agreements and assignments of inventions in
connection with their employment or consulting arrangement with the Company.
Government Regulation
The products developed by the Company come under the jurisdiction of the
Food and Drug Administration (the "FDA") of the United States Department of
Health and Human Services, as well as other Federal, state and local agencies
and similar health authorities in foreign countries. The regulations promulgated
by such agencies govern the introduction of new medical devices and
modifications to approved devices, the observances of certain standards with
respect to the manufacture and labeling of such devices, the maintenance of
certain records and the reporting of potential product defects.
The Federal Food, Drug and Cosmetics Act, as amended, regulates
manufacturers of "medical devices". The Company's products are medical devices
within the meaning of such Act. An amendment to the Federal Food, Drug and
Cosmetics Act providing for the classification of medical devices and the
establishment of standards relating to their safety and effectiveness,
scientific review of certain devices and the registration of manufacturers and
others has been in effect since 1976 and has been supplemented by the Safe
Medical Devices Act of 1991. Under these provisions, a manufacturer must obtain
approval from the FDA of a new medical device before it can be marketed, which
approval process requires, in the case of certain classes of medical devices,
that the safety and efficacy of such devices be demonstrated by the manufacturer
to the FDA through the conduct of an FDA approved clinical evaluation program.
Under certain circumstances, the cost of obtaining such approval may be high and
the process lengthy and no assurance can be given that approval will be
obtained. Although the Company has received FDA approval to market its principal
existing products, or is exempt from formal approval requirements as provided by
law for those devices already in distribution before May 28, 1976, there can be
no assurance that the Company will receive the requisite approvals to market
additional products. Furthermore, any substitution by the Company of its current
sources for certain raw materials utilized in its production processes will, if
such substitution results in a change in the composition of the material, be
subject to FDA approval, and there can be no assurance that such approvals will
be obtained.
Since the devices developed by the Company are intended for "human use", as
defined by the FDA, the Company and such devices are subject to FDA regulations
which, among other things, allow for the conduct of routine detailed inspections
of device manufacturing establishments and require adherence to "good
manufacturing practices" ("GMP") in the manufacture of medical devices which
include testing, quality control, design and documentation requirements. The
Company currently believes it is in compliance with GMP.
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In addition, certain other classes of medical devices must comply with
industry-wide performance standards with respect to safety and efficacy
promulgated by the FDA. The FDA has not yet developed industry-wide performance
standards with respect to the safety and efficacy of those products manufactured
by the Company which will be subject to such standards. When and if such
standards are adopted, the Company will be required to submit data demonstrating
compliance with the standards (during which period the Company may be permitted
to continue to market products which have been previously approved by the FDA).
In recent years, the FDA has pursued a more rigorous enforcement program to
ensure that regulated businesses, like the Company, comply with applicable laws
and regulations. Noncompliance with applicable requirements can result in fines,
penalties, recall of products, suspension of production or the inability to
obtain premarket clearance or approval for new products. The Company cannot
predict the extent or impact of future Federal, state or local legislation or
regulation.
Many countries in which the Company markets its products regulate the
manufacture, marketing and use of medical devices. The Company intends to pursue
product approval or registration procedures in countries where it is marketing
its products. For the most part, the registration and approval process is
accomplished in coordination with its international distributors. To date,
foreign regulations have not adversely affected the Company's business. The
Company intends to make every effort to comply with applicable foreign
regulations.
Export sales of devices that have not received FDA marketing clearance
generally are subject to export permit requirements. In order to obtain such a
permit, the Company must provide the FDA with documentation from the medical
device regulatory authority of the country in which the purchaser is located,
stating that the sale of the device is not in violation of that country's
medical device laws. In April 1996, new legislation was enacted to permit the
export of unapproved devices if the product complies with the laws of the
country and as long as the products are approved by any of the industrialized
countries specified in the export reform legislation. The Company has received
such clearance for its Circuit Breaker steerable catheter with temperature
control for ablation and is currently distributing it outside the U.S.
The Company is also subject to various Federal, state and local laws
pertaining to such matters as safe working conditions, environmental protection,
fire hazard control and other regulations. The Company is not aware of any
regulations with which it is not in compliance.
Item 2. Properties
The Company's principal manufacturing facilities and executive offices are
located at 2100 Felver Court, Rahway, New Jersey, in premises which it purchased
in fiscal year 1976. This property secures part of the indebtedness to the
T-Partnership (see Note 7 in Notes to the Financial Statements). The Company
also leases a 10,000 square foot facility located in Avenel, New Jersey. The
lease for the Avenel facility is on a month-to-month basis. These premises are
suitable for all of the Company's current and immediately foreseeable
production, development and administrative functions.
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Item 3. Legal Proceedings
The Company is involved in certain claims and litigation arising in the
normal course of business. Management believes, based on the opinion of counsel
representing the Company in such matters, that the outcome of such claims and
litigation will not have a material effect on the Company's financial position
and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on June 12, 1996 (the
"Annual Meeting").
(b) Not applicable because (i) proxies for the Annual Meeting were
solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934;
(ii) there was no solicitation in opposition to management's nominees as listed
in the Company's proxy statement; and (iii) all of such nominees were elected.
(c) At the Annual Meeting, the Company's shareholders voted in favor of
management's nominees for election as directors of the Company as follows:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
George M. Pavia, Esq. 5,347,591 4,965
Abraham H. Nechemie 5,347,591 4,965
Ervin Schoenblum 5,347,591 4,965
</TABLE>
(d) Not applicable.
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PART II
Item 5. Market for the Company's Common Stock and Related
Security Holder Matters
The Company's common stock is traded in the over-the-counter market under
the symbol "ECTH". The table below shows for the periods indicated the closing
figures of the Company's stock, as reported on the NASDAQ Stock Market. These
prices represent prices between dealers and do not include retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
Quarter High Low High Low
<S> <C> <C> <C> <C>
1 15/16 7/16 1 1/4 1
2 1 9/16 7/16 1 3/16 1 1/16
3 2 7/16 1 1/4 1 1/16 3/4
4 2 7/8 1 1/16 13/16 3/4
</TABLE>
On November 18, 1996, the number of shareholders of record was 783.
No cash dividends have been declared by the Registrant during the last five
fiscal years nor does the Company plan to pay dividends in the near future.
Item 6. Selected Financial Data
The selected financial data set forth below have been derived from the
Company's financial statements referred to under Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K of this Annual Report on Form
10-K, and previously published historical financial statements not included in
this Annual Report on Form 10-K. The selected financial data set forth below
should be read in connection with "Item 7. Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and the Company's financial
statements, including the notes thereto, referred to herein.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994 1993 1992
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues........... $ 7,362 $ 7,263 $ 7,248 $ 8,155 $ 7,842
Net loss............ (892) (1,136) (1,372) (804) (419)
Working capital..... 2,025 2,505 2,362 2,798 3,888
Total assets........ 3,893 4,382 4,270 4,956 6,034
Long term liabilities...... 1,485 1,200 638 32 544
Loss per share...... ($.14) ($.18) ($.24) ($.14) ($.11)
Dividends on common stock none none none none none
Weighted average number
of shares of common
stock and common stock
equivalents outstand-
ing............... 6,354 6,027 5,711 5,572 3,932
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Year Ended August 31, 1996 Compared to Year Ended August 31, 1995
Although 1996 was a difficult year financially, it provided what management
believes, is a foundation for the future. During 1996, the Company entered into
a joint venture arrangement with one of the leading centers for
electrophysiology in the U.S. to develop products for the diagnosis of
ventricular tachycardia. The Company also began to develop products in the
therapeutic area of atrial fibrillation and continues to explore resolutions for
the problems of the electrophysiologist. The Company is also seeking to expand
its OEM business in order to capitalize on its catheter technology as well as
its manufacturing capabilities. In June 1996, the Company received an advance of
$300,000 from an unrelated party to perform research and development and
pre-production planning. In September 1996, the Company reached a verbal
agreement-in-principle to perform further research and development and
production for this company. The Company is to receive a monthly fee of $150,000
for a period of one year for this effort. This arrangement has not been reduced
to writing and remains non-binding. In October 1996, the Company reached an
agreement to license certain of its technology to another medical device company
that is in a market segment in which the Company does not participate; this
agreement is currently verbal and has not been finalized. The aforementioned
agreements include the opportunity to manufacture third party products which
could increase plant utilization. However, there can be no assurance that the
Company will receive the manufacturing rights to these products or be able to
manufacture these products.
Net revenues increased $99,012 (1.4%) for the fiscal year ended August 31,
1996 to $7,362,436 as compared to the fiscal year ended August 31, 1995. Total
domestic sales decreased $416,351 (7.9%) while international sales increased
$359,656 (18.3%) for fiscal 1996 as compared to fiscal 1995. In addition, the
Company had revenues of $155,707 in 1996 related to the performance of research
and development activities for a third party. The decline in domestic sales is
attributed to a decline in sales in several of the Company's product lines,
especially the Company's steerable catheters, and the loss of field sales
personnel that have not yet been replaced. The increase in international sales
is attributed to an increase in sales of the Company's traditional and
electrophysiology products, including sales to distributors in countries where
the Company had not previously been represented.
Gross profit dollars decreased $118,899 (3.5%) in fiscal 1996 as compared
to the prior year. This decrease in gross profit is attributed primarily to the
increased fourth quarter production costs and write-offs of certain inventories.
The gross profit percentage for 1996 was 44.6% as compared to 46.8% for 1995.
Gross profit for 1996 also included the positive impact of selling directly to
hospitals in the northeast region rather than through a distributor, as
previously accomplished, which required discounts. In December 1995, the Company
reduced its manufacturing staff as a result of lower than anticipated demand.
Gross profit was also negatively affected as a result of this labor reduction,
since overhead expenses were allocated over a smaller direct labor pool. In
October 1996, the Company again reduced its workforce.
Selling, general and administrative expenses decreased by $483,820 (14.1%)
for fiscal 1996 as compared to fiscal 1995. This decrease primarily reflects
lower domestic marketing and selling expenses. This decrease is attributed to
the departure of some of the Company's sales representatives and the Director of
Clinical Development who have not been replaced. This decrease was offset
partially by hiring an International Marketing Manager.
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Research and development expense increased by $78,117 (8.4%) for fiscal
1996 as compared to the prior fiscal year. The increase is attributed to an
increase in personnel, consulting fees and purchases of materials and supplies
for new product development.
Interest expense increased in fiscal 1996 as a result of increased
borrowings from the T-Partnership (see Note 7 to Notes to the Financial
Statements).
The net loss for fiscal year 1996 was $892,940 or $.14 per share as
compared to a loss of $1,135,890 or $.18 per share for fiscal year 1995.
Year Ended August 31, 1995 Compared to Year Ended August 31, 1994
Net sales for the fiscal year ended August 31, 1995 increased $15,764
(0.2%) as compared to the fiscal year ended August 31, 1994. Total domestic
sales decreased $231,256 (4.2%) and international sales increased $247,020
(14.4%) for fiscal 1995 as compared to fiscal 1994. The decline in domestic
sales is attributed predominantly to a decline in the volume of business from
the Company's sole domestic distributor. The Company terminated its agreement
with this distributor as of May 31, 1995, pursuant to the terms of the
agreement. The Company is now selling in this territory with direct sales
representatives. Sales declines occurred in most of the Company's product lines,
except its diagnostic steerable catheters, which increased as a result of the
extension of its product line offerings. The decrease in domestic sales was
partially offset by shipments to an OEM customer for a special-design catheter
which will be used by this customer in its clinical trials for its own product.
However, there is no assurance that sales to the OEM customer will continue in
the future. The increase in international sales is attributed to an increase in
sales of certain of the Company's traditional and electrophysiology products,
including sales to distributors in countries where the Company had not been
previously represented. The Company's plans to increase its sales include
additional emphasis on its pacing and monitoring products, new product
introductions and aggressive pricing strategies. However, there can be no
assurance that the Company will be successful in its efforts to increase sales.
Gross profit dollars increased $281,162 (9.0%) in fiscal 1995 as compared
to the prior year. This increase in gross profit is attributed primarily to the
increase in operating yields and further absorption of overhead as a result of
the additional personnel required to manufacture some of the new and more
sophisticated products. Gross profit has been negatively affected by the
Company's aggressive pricing policy. The gross profit percentage for 1995 was
46.8% as compared to 43.1% for 1994.
Selling, general and administrative expenses increased by $41,505 for
fiscal 1995 as compared to fiscal 1994. This increase is attributed primarily to
an increase in marketing/sales expenses of $264,376 (12.1%) associated with the
addition of new sales representatives, the hiring of a National Sales Manager
and the addition of an International Marketing Manager. The increase is offset
by a decrease in corporate and administrative expenses of $222,871 (18.3%) due
to lower administrative salaries as a result of reduction in personnel, legal
costs, consulting fees and expenses associated with the Company's former Chief
Executive Officer who retired on March 1, 1994.
Research and development expenditures decreased by $280,029 (23.1%) for
fiscal 1995 as compared to fiscal 1994. The decrease is attributed to a
reduction in personnel, decreased purchases of research and development
materials and supplies and a reduction in required support from manufacturing
for new product development.
12
<PAGE>
Interest expense increased in fiscal 1995 as a result of increased
borrowings from the T-Partnership and higher interest rates, including the
amortization of the value of warrants issued in conjunction with these
borrowings.
In August 1994, the Company received $200,000 in settlement of its
litigation with a previous supplier and such amount was included in other income
in fiscal 1994, thereby accounting for the reduction in other income in fiscal
1995.
The net loss for fiscal year 1995 was $1,135,890 or $.18 per share as
compared to a loss of $1,371,915 or $.24 per share for fiscal year 1994.
Liquidity and Capital Resources
At August 31, 1996 working capital decreased $480,671 to $2,024,746 from
August 31, 1995. The current ratio was 2.7 to 1 at August 31, 1996 as compared
to 3.2 to 1 at August 31, 1995. Net cash used in operating activities was
$546,610 for the year ended August 31, 1996 as compared to $1,143,975 for the
year ended August 31, 1995. During 1996, the Company continued to devote
significant resources to the development of new products and sales activities.
The decrease in net cash used in operating activities is primarily the result of
the reduction in the loss from operations and decreases in accounts receivable
and inventories. However, this was partially offset by the reduction in accounts
payable.
On August 31, 1995, the Company entered into an agreement with the T-
Partnership to borrow an additional $500,000 (Lending Agreement). In January
1996, the Company and the T-Partnership agreed to a restructuring of its
financing agreement. The T-Partnership advanced an additional $200,000 to the
Company and agreed to defer interest payments for a period of three months
(interest payments were added to the outstanding principal on the T-Partnership
indebtedness). The total indebtedness due to the T-Partnership at August 31,
1996 was $1,747,125.
The rate of interest is 12% per annum and is payable monthly on any
outstanding balance. Principal payments of $25,000 began on September 1, 1996.
Any remaining balance is due on August 1, 2001. The loan is secured by the
Company's property, building, accounts receivable, inventories and machinery and
equipment. The Company is to prepay the outstanding balance in the event the
Company is merged into or consolidated with another corporation or the Company
sells all or substantially all of its assets.
In exchange for the additional advances, the Company agreed that if it is
not in compliance with certain financial covenants, to be tested on a monthly
basis, the T-Partnership may declare an Event of Default and accelerate
repayment of the indebtedness. As of August 31, 1996, the Company was not in
compliance with this financial covenant. In addition, the Company did not make
its required December 1, 1996 principal payment. However, on December 16, 1996,
the T-Partnership agreed not to exercise its right to accelerate the repayment
of indebtedness through September 1, 1997 as a result of non-compliance with the
aforementioned financial covenant and the nonpayment of the December principal
payment or any future principal payments due in the 1997 fiscal year.
In June 1996, the Company received an advance of $300,000 from an unrelated
company to perform research and development and pre-production. In September
1996, the Company reached a verbal agreement-in-principle with such company to
perform research and development and production for a periodof one year for a
monthly fee of $150,000. This arrangement has not been reduced to writing and
remains non-binding.
13
<PAGE>
The report of the Company's independent auditors on the Company's financial
statements, included elsewhere herein, includes an explanatory paragraph which
states that the Company's recurring losses and limited working capital raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty. During 1996, the Company was able to satisfy
its cash shortfall from operating activities with the borrowings from the
T-Partnership, and advances from an unrelated company to perform research and
development and cash on hand. The Company's ability to continue in business is
dependent upon its ability to generate sufficient cash flow from operations or
to obtain additional financing. The Company continues to re-evaluate its plans
and adopt certain cost reduction measures. The Company is attempting to increase
sales by examining and, where appropriate, modifying its distribution network,
utilizing aggressive pricing and introducing new products to market. There is no
assurance that these programs can be successfully implemented.
The Company does not plan to pay dividends in the near future.
Recently Issued Accounting Standard
In March, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of",
which is effective for fiscal years beginning after December 15, 1995. In
October 1995, the FASB issued SFAS No. 123,"Accounting for Stock-Based
Compensation", which is effective for fiscal years beginning after December 15,
1995. Neither of these standards is expected to have a significant effect on
either the results of operations or financial position of the Company.
Inflation
Inflation did not have a material impact on the results of the Company's
operations during the last three fiscal years.
Item 8. Financial Statements and Supplementary Data
Response to this Item is contained in "Item 14 - Exhibits, Financial
Statement Schedules and Reports on Form 8-K", which information is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
14
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth certain information concerning the Company's
directors and executive officers:
Name, Age, as of November 18,
1996 and Positions and
Offices Held with Business Experience During Past 5
the Company Years and Principal Occupation
----------- ------------------------------
George M. Pavia Partner in the law firm, Pavia &
Age 68; Director Harcourt for over the past five
since 1986(1) years.
Abraham H. Nechemie Business Consultant. Formerly a partner
Age 72; Director since in Wiss & Company, a certified public
1992(1) accounting firm. Retired from the firm
in 1985.
Ervin Schoenblum Acting President since December 1993.
Age 56; Director since Management Consultant for over five
1992 years. Advisor to the Company
since February 1989.
Lee W. Affonso, Age 47; Vice President of the Company since July
Vice President 1992 except for the period from September,
1993 to December 1993 when he served as
Senior Sales Specialist; Director of
Marketing & Sales from 1989 to 1992.
Robert W. Kokowitz Vice President of the Company since July
Age 41; Vice President 1992. Director of Operations from 1989 to
1992.
Joseph P. Macaluso Chief Financial Officer since May 1987.
Age 44; Treasurer and
Chief Financial Officer
Arlene C. Bell Secretary since May 1987. Executive
Age 51; Secretary Assistant to the Chairman since 1981,
and to the Acting President since
March 1, 1994.
______________________
(1)Member of audit committee.
The Company's directors' terms will expire when their successors are
elected and qualify at the annual meeting of shareholders. The Company's
officers serve for a period of one year and until their successors are elected
by the Board of Directors.
On December 6, 1993 the Board of Directors elected Mr. Ervin Schoenblum
Acting President replacing Mr. Max Lee Hibbs, former President, who resigned in
September, 1993.
15
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely upon the Company's review of the copies of such forms received
by it, pursuant to Section 16(a) and to written representations of its incumbent
directors, officers and beneficial owners of more than 10% of the Company's
common stock, the Company believes that, during the period September 1, 1995 to
August 31, 1996 all filing requirements applicable to its officers, directors
and owners of more then 10% of the Company's common stock were complied with,
except that Ervin Schoenblum, Acting President of the Company, effected two
purchase transactions in connection with shares of the Company's common stock
which were not timely reported; upon learning of the reporting obligation the
failure was promptly rectified.
Item 11. Executive Compensation
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all compensation awarded, earned or paid by
the Company for services rendered in all capacities to the Company during each
of the fiscal years ended August 31, 1996, 1995 and 1994 of the Company's Chief
Executive Officer or person acting in a similar capacity, and the Company's
officers whose total compensation for the fiscal year ended August 31, 1996
exceeded $100,000.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
Awards
Annual Securities
Compensation Underlying All Other
Name and Salary Options(1) Compensation
Principal Position Year #
<S> <C> <C> <C> <C>
Ervin Schoenblum(2) 1996 $ 102,000 - $ -
Acting President 1995 86,000 25,000 -
1994 50,000 25,000 16,000
Lee W. Affonso 1996 $ 112,000 - -
Vice President 1995 117,000 - -
1994 105,000 24,000 -
Joseph P. Macaluso(3) 1996 $ 83,000 - 19,000
Treasurer & Chief 1995 83,000 - 18,000
Financial Officer 1994 83,000 24,000 17,000
<FN>
(1) The table reflects the number of options granted under the Company's Incentive Stock Option Plan.
(2) Prior to becoming Acting President in December 1993, Mr. Schoenblum served as a consultant to the
Company. His compensation shown in the last column represents consulting fees.
(3) Other compensation represents commissions on international sales.
</FN>
</TABLE>
Stock options are also granted to officers and are determined by the Board
of Directors based upon the individual's contribution to the Company. During
fiscal year 1996 no options were granted to the named executive officers.
16
<PAGE>
Aggregate Option Exercises and Year-End Option Table
The following table provides information on option exercises during the
fiscal year 1996 by the named executive officers and the value of each of their
unexercised options at August 31, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
(A) (B) (C) (D) (E)
Number of Value of
Unexercised Unexercised
Options In-the-Money
FY-End (#) Options
FY-End ($) (1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Ervin Schoenblum - - 48,000/32,000 $30,000/$20,000
Lee W. Affonso - - 21,900/14,600 $13,688 /$9,125
Joseph P. Macaluso - - 21,900/14,600 $13,688 /$9,125
<FN>
____________
(1) Calculated on the basis of fair market value of the underlying securities at August 31, 1996 less the
exercise price
</FN>
</TABLE>
Remuneration of Directors
Each non-officer director is compensated $1,000 for each meeting attended.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
A. Set forth below is information concerning persons (including any "group"
as that term is used in Section 13(d) (3) of the Securities Exchange Act of
1934) known to the Company to own more than 5% of the common stock, of the
Company as of November 18, 1996.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percentage
Beneficial Owner Ownership of Class(1)
- ---------------- --------- -----------
<S> <C> <C>
T-Partnership 2,464,844 shares(2) 35.4%
c/o Wiss & Co.
354 Eisenhower Parkway
Livingston, NJ 07039
Bruce Paul 375,000 shares 5.9%
1 Hampton Road
Purchase, NY 10577
<FN>
- ----------------------
(1)The common stock deemed to be owned which is not outstanding but subject to
currently exercisable options is deemed to be outstanding for the purpose of
determining the percentage of all outstanding common stock owned.
(2)Includes 83,344 and 500,000 shares, which the T-Partnership has the right to
acquire pursuant to outstanding warrants, which warrants are immediately
exercisable at prices of $1.425 and $.9875 per share, respectively.
</FN>
</TABLE>
17
<PAGE>
B. The following table sets forth the equity securities of the Company or
any of its parents or subsidiaries beneficially owned directly or indirectly by
all directors of the Company, each of the named executive officers and by the
directors and executive officers of the Company as a group as of November 18,
1996.
<TABLE>
<CAPTION>
Name of Beneficial Amount and Nature of Percentage
Owner Beneficial Ownership of Class(6)
----- -------------------- -----------
<S> <C> <C>
George M. Pavia 57,366 shares(1) 0.9%
Abraham H. Nechemie 128,242 shares(2) 2.0%
Ervin Schoenblum 171,242 shares(2) 2.7%
Lee W. Affonso 35,300 shares(3) 0.5%
Joseph P. Macaluso 29,400 shares(4) 0.5%
All executive officers
and directors as a group 472,250 shares(5)(2) 7.2%
(7 persons)
<FN>
- ----------------------
(1)Includes 36,000 shares subject to currently exercisable options and 16,276
shares owned by Pavia & Harcourt, a law firm of which Mr. Pavia is a member.
(2)Messrs. Nechemie and Schoenblum each have a 5% equity interest in the
T-Partnership, which owns 1,881,500 shares of the Company's common stock.
Accordingly, Messrs. Nechemie and Schoenblum each reports beneficial ownership
of 94,075 shares of the Company's common stock. In addition, Messrs. Nechemie
and Schoenblum each reports beneficial ownership of 25,000 warrants that were
issued to the T-Partnership pursuant to the August 31, 1995 Lending Agreement
with the Company and beneficial ownership of 4,167 warrants in connection with
the March 1995 private placement. Also included in the table above are
currently exercisable options for 5,000 and 48,000 shares held by Messrs.
Nechemie and Schoenblum, respectively.
(3)Includes 21,900 shares subject to currently exercisable options.
(4)Includes 21,900 shares subject to currently exercisable options.
(5)Includes 162,500 shares subject to currently exercisable options held by
all executive officers and directors of the Company (including those
individually named in the table above).
(6)The common stock deemed to be owned which is not outstanding but subject to
currently exercisable options is deemed to be outstanding for the purpose of
determining the percentage of all outstanding common stock owned.
</FN>
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no compensation committee or Board Committee performing
similar functions. Ervin Schoenblum, the Company's Acting President,
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
On October 11, 1993, the Company entered into an agreement with the T-
Partnership to borrow up to $1,000,000. Ervin Schoenblum, the Company's Acting
President and director, and another member of the Company's Board of Directors
are members of the T-Partnership. As of August 31, 1995, the Company had drawn
down all of the $1,000,000. On August 31, 1995, the Company entered into an
agreement with the T-Partnership to borrow an additional $500,000. In January
1996, the T-Partnership agreed to lend the Company an additional sum of $200,000
and a deferral of interest payments on all indebtedness for three months. As of
August 31, 1996, the Company had received all of the available funds and had
outstanding loans of $1,747,125, including deferred interest to the
T-Partnership.
18
<PAGE>
The rate of interest is 12% per annum and is payable monthly on any
outstanding balance. Principal payments of $25,000 began on September 1, 1996.
Any remaining balance is due on August 1, 2001. The loan is secured by the
Company's property, building, accounts receivable, inventories and machinery and
equipment. The Company must prepay the outstanding balance in the event the
Company is merged into or consolidated with another corporation or the Company
sells all or substantially all of its assets.
In exchange for the additional funds, the Company agreed that if it is not
in compliance with a certain financial covenant, to be tested on a monthly
basis, the T-Partnership may declare an Event of Default and accelerate
repayment of indebtedness. As of August 31, 1996, the Company was not in
compliance with this financial covenant. In addition, the Company did not make
its required December 1, 1996 principal payment. However, on December 16, 1996,
the T-Partnership agreed not to exercise its right to accelerate the repayment
of indebtedness through September 1, 1997 as a result of non-compliance with the
aforementioned financial covenant and the nonpayment of the December principal
payment or any future principal payments due in the 1997 fiscal year.
Under the provisions of the original agreement, the T-Partnership was
granted purchase warrants which permitted the T-Partnership to purchase 166,667
shares of the Company's common stock at a price of $3.25 per share. The new
agreement states that the T-Partnership will surrender its original purchase
warrant to purchase 166,667 shares of common stock and be granted a new purchase
warrant to purchase 500,000 shares of the Company's common stock at a price of
$0.9875 per share. A value has been allocated to the warrants based upon their
estimated fair market value at the date of the agreement. Such amount ($50,000)
is amortized as additional interest expense over the term of the indebtedness.
The unamortized balance is shown in other assets in the accompanying 1996 and
1995 balance sheets. The warrants are immediately exercisable and expire on
August 1, 2001. As of August 31, 1996, these warrants remain outstanding.
BOARD COMPENSATION REPORT ON EXECUTIVE COMPENSATION
The Company has no compensation committee or other committee of the Board
of Directors performing similar functions. All members of the Board of Directors
review and determine executive compensation for all executive officers on an
annual basis. Ervin Schoenblum, the Company's Acting President, is the only
executive officer of the Company also serving on the Board. Mr. Schoenblum's
compensation as Acting President was negotiated between the parties and was
based in part on the amount of compensation paid to him while he was a
consultant to the Company and the level of compensation historically paid by the
Company for this position.
The Board of Directors has implemented an executive compensation philosophy
that seeks to relate executive compensation to corporate performance, individual
performance and creation of stockholder value. Historically, this has been
achieved through compensation programs which focus on both short and long term
results.
In accordance with the Board of Directors' executive compensation
philosophy, the major component of executive compensation has been base salary.
Salaries for executive officers are based on current individual and
organizational performance, affordability and competitive market trends.
Additional incentives are provided through issuance of incentive stock options.
Board of Directors: Abraham H. Nechemie
George M. Pavia, Esq.
Ervin Schoenblum
19
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the five-year cumulative total
return on the Company's Common Stock to the S & P 500 Index and the S & P
Medical Products and Supplies Index assuming $100 was invested on August 31,
1991 and all dividends were reinvested.
<TABLE>
Indexed Returns
<CAPTION>
Years Ending
Company/Index Aug91 Aug92 Aug93 Aug94 Aug95 Aug96
<S> <C> <C> <C> <C> <C> <C>
ELECTRO CATHETER CORP 100 100.00 125.00 62.50 40.60 81.25
S&P 500 INDEX 100 107.92 124.34 131.14 159.27 189.10
HLTH CARE(MED PDS&SUPP)-500 * 100 101.42 77.82 90.97 140.04 159.34
* Name change from Medical Products & Supplies
</TABLE>
Notwithstanding anything set forth in any of the Company's previous filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934 which
might incorporate future filings, the preceding performance graph and the Report
of the Compensation Committee herein above provided shall not be deemed
incorporated by reference into any such filings.
Item 13. Certain Relationships and Related Transactions
On October 11, 1993, the Company entered into an agreement with the T-
Partnership to borrow up to $1,000,000. Ervin Schoenblum, the Company's Acting
President and director, and another member of the Company's Board of Directors
are members of the T-Partnership. As of August 31, 1995, the Company had drawn
down all of the $1,000,000. On August 31, 1995, the Company entered into an
agreement with the T-Partnership to borrow an additional $500,000. In January
1996, the T-Partnership agreed to lend the Company an additional sum of
$200,000 and a deferral of interest payments on all indebtedness for three
months. As of August 31, 1996, the Company had received all of the available
funds and had outstanding loans of $1,747,125, including deferred interest to
the T-Partnership.
The rate of interest is 12% per annum and is payable monthly on any
outstanding balance. Principal payments of $25,000 began on September 1, 1996.
Any remaining balance is due on August 1, 2001. The loan is secured by the
Company's property, building, accounts receivable, inventories and machinery and
equipment. The Company must prepay the outstanding balance in the event the
Company is merged into or consolidated with another corporation or the Company
sells all or substantially all of its assets.
20
<PAGE>
In exchange for the additional funds, the Company agreed that if it is not
in compliance with a certain financial covenant, to be tested on a monthly
basis, the T-Partnership may declare an Event of Default and accelerate
repayment of indebtedness. As of August 31, 1996, the Company was not in
compliance with this financial covenant. In addition, the Company did not make
its required December 1, 1996 principal payment. However, on December 16, 1996,
the T-Partnership agreed not to exercise its right to accelerate the repayment
of indebtedness through September 1, 1997 as a result of non-compliance with the
aforementioned financial covenant and the nonpayment of the December principal
payment or any future principal payments due in the 1997 fiscal year.
Under the provisions of the original agreement, the T-Partnership was
granted purchase warrants which permitted the T-Partnership to purchase 166,667
shares of the Company's common stock at a price of $3.25 per share. The new
agreement states that the T-Partnership will surrender its original purchase
warrant to purchase 166,667 shares of common stock and be granted a new purchase
warrant to purchase 500,000 shares of the Company's common stock at a price of
$0.9875 per share. A value has been allocated to the warrants based upon their
estimated fair market value at the date of the agreement. Such amount ($50,000)
is amortized as additional interest expense over the term of the indebtedness.
The unamortized balance is shown in other assets in the accompanying 1996 and
1995 balance sheets. The warrants are immediately exercisable and expire on
August 1, 2001. As of August 31, 1996, these warrants remain outstanding.
21
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) The following documents are filed as a part of the Report:
1. Financial Statements
See: Index to Financial Statements
2. Financial Statement Schedules
See: Index to Financial Statements
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the financial statements and the notes thereto.
3. Exhibits(1)
(3)(a) Registrant's Certificate of Incorporation as amended through
April 11, 1978 - filed as an Exhibit to Registrant's Report
on Form 10-K for the fiscal year ended August 31, 1981, and
incorporated by reference herein as an exhibit hereto.
(3)(b) Amendment to Registrant's Certificate of Incorporation,dated
March 20, 1985 - filed as an Exhibit to Registrant's Report
on Form 10-Q for fiscal quarter ended May 31, 1985, and
incorporated by reference herein as an exhibit hereto.
(3)(c) Amended and Restated By-laws - filed as an Exhibit to
Registrant's Report on Form 10-K for the fiscal year ended
August 31, 1989, and incorporated by reference herein as an
exhibit hereto.
(10)(d) Registrant's 1984 Employee Stock Purchase Plan, filed as an
Exhibit to Registrant's Report on Form 10-Q for the second
quarter of fiscal year 1984 ended February 29, 1984, and
incorporated by reference herein as an exhibit hereto.
(10)(h) Registrant's 1987 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended August 31, 1987, and incorporated by
reference as an exhibit hereto.(2)
(10)(i) Registrant's 1990 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended August 31, 1990, and incorporated by
reference as an exhibit hereto.(2)
(10)(j) Registrant's 1992 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended August 31, 1992, and incorporated by
reference as an exhibit hereto.(2)
(1) The Company's current, quarterly and annual reports are filed with the
Securities and Exchange Commission under file No. 0-7578.
(2) Management contract or compensatory plan or arrangement.
22
<PAGE>
(10)(k) Agreement dated October 11, 1993 between Registrant and the
T-Partnership filed as an exhibit to Registrant's Report on
Form 10-K for the fiscal year ended August 31, 1993, and
incorporated by reference as an exhibit hereto.
(10)(l) Amendment dated November 21, 1994 to Agreement between
Registrant and the T-Partnership filed as an exhibit to
Registrant's Report on Form 10-K for the fiscal year ended
August 31, 1994, and incorporated by reference as an
exhibit hereto.
(10)(m) Lending Agreement dated August 31, 1995 between Registrant
and the T-Partnership filed as an exhibit to the
Registrant's Report on Form 10-K for the fiscal year ended
August 31, 1995 and incorporated by reference as an exhibit
hereto.
(10)(n) Composite Modification Agreement between the Registrant and
the T-Partnership dated January 1, 1996 filed as an exhibit
hereto.
(22) Subsidiaries - Electro-Catheter International Corp.
(24) Consent of KPMG Peat Marwick LLP filed as an exhibit hereto.
(27) Financial Data Schedule which is submitted electronically to
the Securities and Exchange Commission for information only
and is not filed.
(b) Reports on Form 8-K : None.
(c) Exhibits: Reference is made to the list of exhibits
contained in item 14(a) 3 above.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ELECTRO-CATHETER CORPORATION
(Registrant)
By: s/Ervin Schoenblum
-------------------
Ervin Schoenblum
Acting President
Dated: December 13, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and the
capacities and on the dates indicated:
Dated: December 13, 1996 /s/Ervin Schoenblum
-------------------
Ervin Schoenblum, Acting President
& Director
Dated: December 13, 1996 /s/Joseph P. Macaluso
----------------------
Joseph P. Macaluso
Principal Accounting Officer
Dated: December 13, 1996 /s/George M. Pavia
-------------------
George M. Pavia, Director
Dated: December 13, 1996 /s/Abraham H. Nechemie
-------------------
Abraham H. Nechemie, Director
24
<PAGE>
ELECTRO-CATHETER CORPORATION
Index to Financial Statements
Page
Independent Auditors' Report F-1
Financial Statements:
Balance Sheets - August 31, 1996 and 1995 F-2
Statements of Operations - Years ended August 31, 1996,
1995 and 1994 F-3
Statements of Stockholders' Equity - Years ended August 31,
1996, 1995 and 1994 F-4
Statements of Cash Flows - Years ended August 31, 1996,
1995 and 1994 F-5
Notes to Financial Statements F-7
Financial Statement Schedule:
II - Valuation and Qualifying Accounts F-17
All other schedules are omitted for the reason that they are not
required or are not applicable or the required information is shown
in the financial statements or notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Directors
Electro-Catheter Corporation:
We have audited the financial statements of Electro-Catheter Corporation as
listed in the accompanying index. In connection with our audits of the financial
statements, we have also audited the financial statement schedule as listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Electro-Catheter
Corporation at August 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three-year period ended August 31,
1996 in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has limited working capital resources which raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Short Hills, New Jersey
November 7, 1996, except as to the
third paragraph of Note 7, which is as
of December 16, 1996.
F-1
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
Balance Sheets
August 31, 1996 and 1995
<CAPTION>
August 31, August 31,
1996 1995
---- ----
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 275,283 304,385
Accounts receivable, less
allowance for doubtful
accounts of $15,000 in 1996
and $76,746 in 1995 1,016,201 1,206,288
Inventories 1,862,179 2,093,079
Prepaid expenses and other current assets 64,344 43,030
------ ------
Total current assets 3,218,007 3,646,782
Property, plant and equipment, net 551,698 598,787
Other assets, net 123,407 135,947
------- -------
Total assets $ 3,893,112 4,381,516
============ =========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 300,000 13,055
Current installments of capitalized
lease obligations 7,489 --
Accounts payable, trade 345,888 702,137
Deferred revenues 144,293 --
Accrued expenses 395,591 426,173
------- -------
Total current liabilities 1,193,261 1,141,365
Subordinated debentures due to
T-Partnership, excluding current portion 1,447,125 1,200,000
Capitalized lease obligation,
excluding current installments 37,756 --
------ ------
Total liabilities 2,678,142 2,341,365
--------- ---------
Stockholders' equity:
Common stock $.10 par value
Authorized 20,000,000 shares;
issued 6,373,711 in 1996 and
6,336,300 in 1995 637,371 633,630
Additional paid-in capital 10,679,316 10,615,298
Accumulated deficit (10,101,717) (9,208,777)
----------- ----------
Total stockholders' equity 1,214,970 2,040,151
--------- ---------
Commitments and contingencies -- --
--------- ---------
Total liabilities and
stockholders' equity $ 3,893,112 4,381,516
============ =========
See accompanying notes to financial statements
</TABLE>
F-2
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
Statements of Operations
Years ended August 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenues, including research
and development revenue of
$155,707 in 1996 $ 7,362,436 7,263,424 7,247,660
Cost of goods sold 4,079,502 3,861,591 4,126,989
--------- --------- ---------
Gross profit 3,282,934 3,401,833 3,120,671
Operating expenses:
Selling, general and
administrative 2,954,991 3,438,811 3,397,306
Research and development 1,010,073 931,956 1,211,985
--------- ------- ---------
Operating loss (682,130) (968,934) (1,488,620)
Other income (expense):
Interest income 86 1,102 2,761
Interest expense (210,896) (168,058) (92,656)
Other, principally proceeds from
settlement of litigation - - 206,600
------- ------- -------
Net loss $ (892,940) (1,135,890) (1,371,915)
=========== ========== ==========
Net loss per common share $ (0.14) (0.18) (0.24)
====== ===== =====
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
Statements of Stockholders' Equity
Years ended August 31, 1996, 1995 and 1994
<CAPTION>
Additional Total
Common paid-in Accumulated stockholders'
stock capital deficit equity
----- ------- ------- ------
<S> <C> <C> <C>
Balances at August 31, 1993 $568,872 9,958,364 (6,700,972) 3,826,264
Stock options exercised 6,620 55,168 -- 61,788
Employee stock plan 740 14,990 -- 15,730
Proceeds from issuance of
stock warrants -- 78,125 -- 78,125
Net loss -- -- (1,371,915) (1,371,915)
-------- -------- ---------- ----------
Balances at August 31, 1994 576,232 10,106,647 (8,072,887) 2,609,992
Employee stock plan 248 1,988 -- 2,236
Common stock issued under private placement 57,150 442,913 -- 500,063
Proceeds from issuance of stock warrants -- 63,750 -- 63,750
Net loss -- -- (1,135,890) (1,135,890)
---------- ---------- ---------- ----------
Balances at August 31, 1995 633,630 10,615,298 (9,208,777) 2,040,151
Stock options exercised 2,350 18,213 -- 20,563
Employee stock plan 287 779 -- 1,066
Common stock issued for services rendered 1,104 10,631 -- 11,735
Amortization of deferred compensation
expense on stock options -- 34,395 -- 34,395
Net loss -- -- (892,940) (892,940)
-------- -------- ---------- ----------
Balances at August 31, 1996 $637,371 10,679,316 (10,101,717) 1,214,970
======== ========== =========== =========
See accompanying notes to financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
<CAPTION>
Statements of Cash Flows
Years ended August 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Decrease in cash and cash equivalents:
Cash flows from operating activities:
Cash received from customers $ 7,614,319 7,066,890 7,041,259
Cash paid to vendors and employees (7,961,291) (8,110,000) (7,692,414)
Interest received 86 1,102 2,761
Interest paid (199,724) (101,967) (51,891)
Proceeds from settlement of litigation -- -- 200,000
------- ------- -------
Net cash used in operating activities $ (546,610) (1,143,975) (500,285)
----------- ---------- --------
Cash flows from investing activities:
Proceeds from sales of property, plant
and equipment -- -- 6,600
Purchases of property, plant
and equipment (34,167) (12,143) (44,952)
------- ------- -------
Net cash used in investing activities $ (34,167) (12,143) (38,352)
----------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock -- 500,063 --
Net proceeds from issuance of
subordinated debentures and warrants 547,125 575,000 625,000
Proceeds from exercise of
stock options 20,563 -- 61,788
Proceeds from employee stock
purchase plan 1,066 2,236 15,730
Proceeds from loan on officer's
life insurance policy -- 25,000 100,000
Repayment of debt (17,079) (18,184) (312,405)
------- ------- --------
Net cash provided by
financing activities 551,675 1,084,115 490,113
------- --------- -------
Net decrease in cash (29,102) (72,003) (48,524)
Cash and cash equivalents
at beginning of year 304,385 376,388 424,912
------- ------- -------
Cash and cash equivalents
at end of year $ 275,283 304,385 376,388
=========== ======= =======
(Continued)
See accompanying notes to financial statements.
F-5
<PAGE>
ELECTRO-CATHETER CORPORATION
Statements of Cash Flows, Continued
1996 1995 1994
Reconciliation of net loss to net cash
used in operating activities:
Net loss $ (892,940) (1,135,890) (1,371,915)
Adjustments:
Depreciation and amortization 130,524 137,106 137,795
Amortization of deferred charges 8,333 61,708 30,167
Gain on disposal of property, plant
and equipment - - (6,600)
Changes in assets and liabilities:
Decrease(increase) in accounts
receivable, net 190,087 (141,514) (206,401)
Decrease (increase)in inventories 230,900 (289,789) 639,520
(Increase) decrease in prepaid
expenses and other current assets (21,314) 96,749 29,626
Decrease (increase) in other assets, net 4,207 3,527 29,554
Increase in deferred revenues 144,293 - -
(Decrease) increase in accounts
payable and accrued expenses (340,700) 124,128 217,969
-------- ------- -------
Net cash used in
operating activities $ (546,610) (1,143,975) (500,285)
========== ========== ========
See accompanying notes to financial statements.
F-6
</TABLE>
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements
August 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Nature of Business
Electro-Catheter Corporation ("Company") has been in business for over
35 years. The Company develops, manufactures, markets, and sells
products for hospitals and physicians. These products are diagnostic
and therapeutic catheters which are utilized in connection with
illnesses of the heart and circulatory system. The Company has
targeted electrophysiology as its focal area for future growth, but
intends to maintain and develop products for emergency care, cardiac
surgery, invasive and non-invasive cardiology and invasive
radiology.
(b) Revenue Recognition
Revenues are recognized at the time of shipment and provisions, when
appropriate, are made where the right to return exists. Revenue
under service contracts are accounted for as the services are
performed.
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents are
carried at cost which approximates market value.
(d) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company's customer base is primarily comprised of
hospitals in the U.S. and distributors outside the U.S. As of August
31, 1996, the Company believes it has no significant concentration
of credit risk with its accounts receivable.
(e) Inventory Valuation
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
(f) Patents and Trademarks
Patents and trademarks are recorded at cost and are amortized on a
straight-line basis over their useful lives. Such costs, net of
accumulated amortization, are included in other assets, net in the
accompanying balance sheets.
(Continued)
F-7
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
(g) Property, Plant and Equipment
Property, plant and equipment is carried at cost. Plant and equipment
is depreciated using the straight-line method over the estimated
useful lives of the assets.
Repairs and maintenance costs are charged to operations as incurred.
Betterments are capitalized. Leasehold improvements are amortized over
the term of the lease or the useful life of the asset, whichever is
shorter.
When assets are retired or otherwise disposed, the cost and related
accumulated depreciation are removed from the related accounts, and
any resulting gain or loss is recognized in operations for the
period.
(h) Research and Development
Research and development costs are charged to expense when incurred.
(i) Accounting for Income Taxes
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws
that will be in effect when such differences are expected to
reverse. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance for any tax benefits which are
not expected to be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period
that such tax rate changes are enacted.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
(k) Stock-Based Compensation
In October 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") which presents companies with
the alternative of retaining the current accounting for stock-based
compensation or adopting a new accounting method based on the
estimated fair value of equity instruments granted to employees
during the year. Companies that do not adopt the fair value based
method of accounting will be required to adopt the disclosure
provisions of SFAS 123 commencing in fiscal 1997. The Company
expects to continue applying its current accounting principles and
upon adoption in fiscal 1997 will present the required footnote
disclosures.
(Continued)
F-8
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
(l) Loss Per Share
Loss per share is computed using the weighted average number of shares
outstanding during each year. Shares issuable upon exercise of
outstanding stock options, warrants and conversion of debentures are
not included in the computation of loss per share because the result
of their inclusion would be anti-dilutive.
The weighted average number of shares of common stock used in the
computation of loss per share was approximately 6,354,000 in 1996,
6,027,000 in 1995 and 5,711,000 in 1994.
(2) Liquidity
The accompanying financial statements have been prepared on a going
concern basis which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary
course of business. The Company incurred net losses of $892,940,
$1,135,890 and $1,371,915 for the years ended August 31, 1996, 1995
and 1994 respectively, and at August 31, 1996 had an accumulated
deficit of $10,101,717. The net losses incurred by the Company have
consumed working capital and weakened the Company's financial
position. The Company's ability to continue in business is dependent
upon its success in generating sufficient cash flow from operations
or obtaining additional financing. The Company continues to
re-evaluate its plans and adopt certain cost reduction measures. The
Company is attempting to increase sales by examining and, where
appropriate, modifying its distribution network, utilizing
aggressive pricing and introducing new products to market. The
Company's ability to continue as a going concern is dependent upon
the successful implementation of the aforementioned programs. There
can be no assurances that these programs can be successfully
implemented. The financial statements do not include any adjustments
relating to the recoverability and classifications of reported asset
amounts or the amounts of liabilities that might result from the
outcome of this uncertainty.
(3) Inventories
<TABLE>
Inventories consisted of the following:
<CAPTION>
1996 1995
<S> <C> <C>
Finished goods $ 954,997 938,224
Work-in-process 490,396 644,957
Materials and supplies 416,786 509,898
------- -------
$ 1,862,179 2,093,079
=========== =========
</TABLE>
(Continued)
F-9
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(4) Property, Plant and Equipment
<TABLE>
Property, plant and equipment consisted of the following:
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 38,400 38,400
Building 153,597 153,597
Building improvements 952,837 947,956
Equipment 2,244,694 2,222,694
Office furniture and
equipment 519,319 512,034
Leasehold improvements 340,382 340,382
Sales equipment and
diagnostic computers 589,348 591,965
Capitalized leases 49,268 -
------ ------
4,887,845 4,807,028
Less accumulated deprecia-
tion and amortization 4,336,147 4,208,241
--------- ---------
Net property, plant
and equipment $ 551,698 598,787
========== =======
</TABLE>
(5) Accrued Expenses
The components of accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accrued salaries, wages and
payroll taxes $ 278,263 322,552
Accrued audit fees 60,000 45,000
Other expenses 57,328 58,621
------ ------
395,591 426,173
======= =======
</TABLE>
(Continued)
F-10
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(6) Deferred Revenues
In June 1996, the Company received an advance of $300,000 from an
unrelated company to perform research and development and
pre-production planning for them. For services performed, the
Company recognized $155,707 in revenues from this agreement in 1996
and such amount is reported in net revenues in the statement of
operations. The remaining $144,293 is recorded as deferred revenues
in the accompanying balance sheet and will be recognized as the
services are performed in the next fiscal year.
(7) Subordinated Debentures Due to T-Partnership
On October 11, 1993, the Company entered into an agreement with the T-
Partnership to borrow up to $1,000,000. On August 31, 1995, the
Company entered into an agreement with the T-Partnership to borrow
an additional $500,000. In January 1996, the T-Partnership agreed to
lend the Company an additional sum of $200,000 and a deferral of
interest payments on all indebtedness for three months. Ervin
Schoenblum, the Company's Acting President and director, and another
member of the Company's Board of Directors are members of the
T-Partnership. As of August 31, 1996, the Company had received all
of the available funds and had outstanding loans of $1,747,125,
including deferred interest to the T-Partnership.
The rate of interest is 12% per annum and is payable monthly on any
outstanding balance. The agreement provides for repayment to begin
on September 1, 1996 with installments of $25,000 each month. Any
remaining balance is due on August 1, 2001. The loan is secured by
the Company's property, building, accounts receivable, inventories
and machinery and equipment. The Company must prepay the outstanding
balance in the event the Company is merged into or consolidated with
another corporation or the Company sells all or substantially all of
its assets.
In exchange for the additional funds, the Company agreed that if it is
not in compliance with a certain financial covenant, to be tested on
a monthly basis, the T-Partnership may declare an Event of Default
and accelerate repayment of indebtedness. As of August 31, 1996, the
Company was not in compliance with this financial covenant. In
addition, the Company did not make its required December 1, 1996
principal payment. However, on December 16, 1996, the T-Partnership
agreed not to exercise its right to accelerate the repayment of
indebtedness through September 1, 1997 as a result of non-compliance
with the aforementioned financial covenant and the nonpayment of the
December principal payment or any future principal payments due in
the 1997 fiscal year.
Under the provisions of the original agreement, the T-Partnership was
granted purchase warrants which permitted the T-Partnership to
purchase 166,667 shares of the Company's common stock at a price of
$3.25 per share. The new agreement states that the T-Partnership
will surrender its original purchase warrant to purchase 166,667
shares of common stock and be granted a new purchase warrant to
purchase 500,000 shares of the Company's common stock at a price of
$0.9875 per share. A value has been allocated to the warrants based
upon their estimated fair market value at the date of the agreement.
Such amount ($50,000) is amortized as additional interest expense
over the term of the indebtedness. The unamortized balance is shown
in other assets in the accompanying balance sheets. The warrants are
immediately exercisable and expire on August 1, 2001. As of August
31, 1996, these warrants remain outstanding.
(Continued)
F-11
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(8) Capitalized Lease Obligations
The Company has entered into lease commitments for equipment that meet
the requirements for capitalization. The equipment has been
capitalized and shown in property, plant and equipment in the
accompanying 1996 balance sheet (see Note 3). The related
obligations are also recorded in the accompanying balance sheet and
are based upon the present value of the future minimum lease
payments with interest rates of 13.7% to 17.1%.
The annual maturities for capitalized lease obligations and
subordinated debentures due to the T-Partnership for the five years
subsequent to August 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 307,776
1998 309,042
1999 310,517
2000 312,236
2001 552,799
</TABLE>
(9) Other Debt
The Company has borrowed $125,000 against the cash surrender value of
a life insurance policy of the former Chairman of the Company.
Interest on the loan is 6%. The loan and accrued interest is
recorded as a reduction in the policy's cash surrender value which
is included in other assets in the accompanying balance sheets.
(10) Stock Options
On May 20, 1987, the Company's stockholders approved the 1987 Incentive
Stock Option Plan (the "1987 Plan"). Under the 1987 Plan, 225,000
shares of authorized but unissued shares of Common Stock, $.10 par
value, of the Company were set aside to provide an incentive for
officers and other key employees to render services and make
contributions to the Company. Options may be granted at not less
than their fair market value at the date of grant and are
exercisable at such time provided by the grants during the five-year
period beginning on the date of grant.
On May 23, 1990, the Company's stockholders approved the 1990 Incentive
Stock Option Plan (the "1990 Plan"). The terms of the 1990 Plan are
substantially the same as the terms of the 1987 Plan. The 1990 Plan
provides for the reservation of 225,000 shares of common stock for
issuance thereunder.
On July 15, 1992, the Company's stockholders approved the 1992
Incentive Stock Option Plan (the "1992 Plan"). The terms of the 1992
Plan are substantially the same as the terms of the 1987 and 1990
Plans. The 1992 Plan likewise provides for the reservation of
225,000 shares of common stock for issuance thereunder.
(Continued)
F-12
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(10) Stock Options, cont.
On April 1, 1992, the Board of Directors adopted the 1992 Non-Qualified
Stock Option Plan pursuant to which options to purchase 200,000
shares of common stock may be granted to directors, officers and key
employees. Options may be granted at a price determined by the Board
of Directors, but not less than 80% of the fair market value at the
date of grant. Options are exercisable at such time provided by the
grants, but each option granted shall terminate no longer than five
years after the date of grant.
In July 1994, the Company extended the expiration date of certain
outstanding options held by two members of its Board of Directors.
The resulting compensation expense is being amortized over the
extension period.
In October 1994, the Board of Directors voted in favor of offering all
employees, officers and directors holding options at a price greater
than $1.00 per share the opportunity to have those options replaced
by stock options at a price of $1.00 per share, representing the
fair market value at that time. Accordingly, options to purchase
384,300 shares were terminated and an equal number of new options
were issued, which is reflected in the table below. In addition, the
Company also granted 25,000 stock options to the Company's Acting
President at $1.00 per share.
A summary of all stock option activity follows:
<TABLE>
<CAPTION>
Number Option
of Price
Shares Per share Total
<S> <C> <C> <C>
Year ended August 31, 1994:
Granted 253,200 $ 2.25 - 2.75 644,625
Exercised 66,200 .88 - 2.50 61,788
Cancelled or expired 344,800 .88 - 2.75 617,225
Outstanding at August 31, 1994 480,800 .88 - 5.00 1,083,074
======= =========== =========
Year ended August 31, 1995:
Granted 405,300 .81 - 1.14 407,025
Cancelled or expired 395,800 1.19 - 2.75 791,338
Outstanding at August 31, 1995 490,300 .81 - 5.00 698,761
======= ========== =======
Year ended August 31, 1996:
Granted 12,900 .81 - .88 10,794
Exercised 23,500 .88 20,563
Canceled or expired 129,700 .81 - 5.00 330,231
Outstanding at August 31, 1996 350,000 .81 - 2.75 358,761
======= =========== ======
</TABLE>
Options to acquire 164,080 shares of common stock were exercisable at
August 31, 1996.
(Continued)
F-13
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(11) Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the Plan) which
provides for the issuance of a maximum of 75,000 shares of the
Company's common stock which were made available for sale under the
Plan's first offering.
After the first offering, subsequent offerings were made upon the
recommendation of the committee administering the Plan. Common stock
can be purchased through employee-authorized payroll deductions at
the lower of 85% of the fair market value of the common stock on
either the first or last day of trading of the stock during the
calendar year. It is the intention of the Company that the Plan
qualify under Section 423 of the Internal Revenue Code. The
Company's Board of Directors authorized extension of the Plan to
January 1, 1997. During 1996, 1995 and 1994, 2,866, 2,476 and 7,403
shares, respectively, were purchased under the Plan.
(12) Preferred Stock, Common Stock and Paid-in Capital
The Company is authorized to issue up to 1,000,000 shares of preferred
stock. As of August 31, 1996, no preferred shares have been issued.
In August 1992, the Company sold 1,666,666 shares of common stock in a
private placement at $1.20 per share for gross proceeds of
approximately $2,000,000. As compensation for its services the
placement agent was granted a warrant to purchase 200,000 shares of
common stock of the Company at an exercise price of $1.80 per share.
Based upon provisions of the placement agreement, the exercise price
has been adjusted to $1.67 per share. This warrant expires August
31, 1997.
In March 1995, the T-Partnership purchased 571,500 shares of the
Company's restricted common stock, $.10 par value, in a private
placement at $.875 per share for gross proceeds of approximately
$500,000. In connection with this private placement, the Company
also issued to the T-Partnership a purchase warrant to purchase
83,344 shares of the Company's common stock at an exercise price of
$1.425 per share. This warrant will expire five years from the date
of the agreement. Ervin Schoenblum, the Company's Acting President
and director, and another member of the Company's Board of Directors
are members of the T-Partnership.
(13) Income Taxes
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will be realized. The
valuation allowance for deferred tax assets as of September 1, 1996
was $2,983,000 as compared to $3,519,000 at September 1, 1995. The
net change in the total valuation allowance for the year ended
August 31, 1996 was a decrease of $536,000 as compared to an
increase of $260,000 at August 31, 1995.
(Continued)
F-14
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(13) Income Taxes, cont.
At August 31, 1996 and 1995, the tax effects of temporary differences
that give rise to the deferred tax assets and deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: 1996 1995
-------------------- ---- ----
<S> <C> <C>
Inventories $ 155,000 104,000
Accounts receivable,
due to allowance for
doubtful accounts 3,000 18,000
Contribution carryover 23,000 23,000
Compensated absences 30,000 27,000
Federal and state net
operating loss carryforwards 2,209,000 2,549,000
Research and development
and investment tax credit
carryforwards 635,000 850,000
------- -------
Total gross deferred
tax assets 3,055,000 3,571,000
Less valuation allowance 2,983,000 3,519,000
--------- ---------
Net deferred tax assets 72,000 52,000
Deferred tax liabilities:
Excess of tax over financial
statement depreciation (72,000) (52,000)
------- -------
Net deferred tax $ -0- -0-
====== ======
</TABLE>
At August 31, 1996, the Company had available federal net operating
loss carryforwards, research and development and investment tax
credit carryforwards that expire as follows:
<TABLE>
<CAPTION>
Net Research
operating and Invest-
loss develop- ment
Expiration carry- ment tax
date forwards credits credits
<S> <C> <C> <C>
1999 $ - 25,000 -
2000 - 275,000 35,000
2001 4,417,000 246,000 43,000
2002 2,063,000 - -
2003 690,000 - -
2004 268,000 - -
2005 46,000 - -
2006 223,000 - -
2007 454,000 - -
2008 854,000 11,000 -
2009 1,368,000 - -
2010 1,178,000 - -
2011 588,000 - -
</TABLE>
(Continued)
F-15
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(14) Segment Data
The Company operates in one business segment. Export sales were
approximately $2,324,000 in 1996, $1,964,000 in 1995 and $1,718,000
in 1994. Sales to the only domestic distributor of the Company's
products totalled approximately $765,000 in 1995 and $1,261,000 in
1994, representing approximately 11% of net sales in 1995 and 17% in
1994. The agreement with this distributor was terminated on May 31,
1995 and, as such, there were no sales to this distributor in 1996.
(15) Related Party Transactions
During fiscal year 1994, a director of the Company who is associated
with the T-Partnership was retained as a management consultant to
the Company. The Company incurred fees from this individual in the
amounts of approximately $16,000 in 1994. In December 1993, this
individual became the Acting President of the Company and still
holds that position.
(16) Commitments and Contingencies
(a) The Company has agreements to lease facilities and equipment for
use in the operations of the business under operating leases. The
Company incurred rental expenses in connection with these leases of
approximately $116,000 in 1996, $148,000 in 1995 and $155,000 in
1994.
The following is a schedule of future minimum rental payments for
operating leases which expire through 2000:
<TABLE>
<S> <C>
1997 $ 26,687
1998 22,007
1999 6,877
2000 4,150
-----
</TABLE>
(b) Deposits have been placed with certain lessors for which monthly
payments will begin when the equipment is placed in service, which
is tentatively scheduled for January 1997. The leases will be
treated as capital leases and are for a duration of five years with
combined annual payments of approximately $80,000.
(c) The Company is involved in certain claims and litigation arising in
the normal course of business. Management believes, based on the
opinion of counsel representing the Company in such matters, that
the outcome of such claims and litigation will not have a material
effect on the Company's financial position and results of
operations.
(Continued)
F-16
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
<TABLE>
Schedule II
ELECTRO-CATHETER CORPORATION
Valuation and Qualifying Accounts
<CAPTION>
Addition
Balance charged
at begin- to cost Balance
ing of and Write- at end
Description year expenses offs of year
- ----------- ---- -------- ---- -------
<S> <C> <C> <C> <C>
1996 Allowance for doubtful accounts $ 76,796 39,383 101,179 15,000
==== ======== ====== ======= ======
1995 Allowance for doubtful accounts $ 21,776 55,020 - 76,796
==== ======== ====== ====== ======
1994 Allowance for doubtful accounts $ 28,139 - 6,363 21,776
==== ======== ====== ===== ======
</TABLE>
(Continued)
F-17
<PAGE>
Exhibits(1)
(3)(a) Registrant's Certificate of Incorporation as amended through
April 11, 1978 - filed as an Exhibit to Registrant's Report on Form
10-K for the fiscal year ended August 31, 1981, and incorporated by
reference herein as an exhibit hereto.
(3)(b) Amendment to Registrant's Certificate of Incorporation, dated
March 20, 1985 - filed as an Exhibit to Registrant's Report on Form
10-Q for fiscal quarter ended May 31, 1985, and incorporated by
reference herein as an exhibit hereto.
(3)(c) Amended and Restated By-laws - filed as an Exhibit to
Registrant's Report on Form 10-K for the fiscal year ended August
31, 1989, and incorporated by reference herein as an exhibit
hereto.
(10)(d) Registrant's 1984 Employee Stock Purchase Plan, filed as an
Exhibit to Registrant's Report on Form 10-Q for the second quarter
of fiscal year 1984 ended February 29, 1984, and incorporated by
reference herein as an exhibit hereto.
(10)(h) Registrant's 1987 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the fiscal year
ended August 31, 1987, and incorporated by reference as an exhibit
hereto.(2)
(10)(i) Registrant's 1990 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the fiscal year
ended August 31, 1990, and incorporated by reference as an exhibit
hereto.(2)
(10)(j) Registrant's 1992 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the fiscal year
ended August 31, 1992, and incorporated by reference as an exhibit
hereto.(2)
(10)(k) Agreement dated October 11, 1993 between Registrant and the T-
Partnership filed as an exhibit to Registrant's Report on Form 10-K
for the fiscal year ended August 31, 1993, and incorporated by
reference as an exhibit hereto.
(10)(l) Amendment dated November 21, 1994 to Agreement between
Registrant and the T-Partnership filed as an exhibit to
Registrant's Report on Form 10-K for the fiscal year ended August
31, 1994, and incorporated by reference as an exhibit hereto.
(10)(m) Lending Agreement dated August 31, 1995 between Registrant and
the T-Partnership filed as an exhibit to the Registrant's Report on
Form 10-K for the fiscal year ended August 31, 1995 and
incorporated by reference as an exhibit hereto.
(10)(n) Composite Modification Agreement between the Registrant and the
T-Partnership dated January 1, 1996 filed as an exhibit hereto.
(22) Subsidiaries - Electro-Catheter International Corp.
(1) The Company's current, quarterly and annual reports are filed with the
Securities and Exchange Commission under file No. 0-7578.
(2) Management contract or compensatory plan or arrangement.
E-1
<PAGE>
(24) Consent of KPMG Peat Marwick LLP filed as an exhibit hereto.
(27) Financial Data Schedule which is submitted electronically to the
Securities and Exchange Commission for information only and is not
filed.
(b) Reports on Form 8-K : None.
(c) Exhibits: Reference is made to the list of exhibits
contained in item 14(a) 3 above.
E-2
Exhibit 10(n)
COMPOSITE MODIFICATION AGREEMENT
THIS COMPOSITE MODIFICATION ("Modification Agreement") dated as of January
1, 1996 between ELECTRO-CATHETER CORPORATION, a New Jersey corporation with
offices at 2100 Felver Court, Rahway, New Jersey 07065 ("Borrower") and THE T
PARTNERSHIP, a New Jersey partnership with offices c/o Wiss & Co., 354
Eisenhower Parkway, Livingston, New Jersey 07039 ("Lender"),
WITNESSETH:
WHEREAS, the Borrower and the Lender entered into a Lending Agreement
("Lending Agreement") dated August 31, 1995, whereby the Lender has loaned to
the Borrower the sum of One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00) ("Loan"); and WHEREAS, to evidence such indebtedness the
Borrower issued a 12% Debenture ("Debenture") to the Lender dated August 31,
1995; and WHEREAS, the Borrower and the Lender entered into a Security Agreement
("Security Agreement") dated as of August 31, 1995, to secure the due and
punctual payment and performance of all obligations of the Borrower under the
Loan Documents (as such term is defined in the Lending Agreement); and
18397_1
- 1 -
<PAGE>
WHEREAS, the obligations of the Borrower under the Loan Documents are
further secured by a Mortgage ("Mortgage") dated October 31, 1995, which
Mortgage is a first lien mortgage on Borrower's real property located in the
City of Rahway, County of Union, State of New Jersey, commonly known and
designated as 2100 Felver Court; and WHEREAS, the Borrower and the Lender have
agreed to modify the Loan Documents on certain terms and conditions as
hereinafter provided. NOW, THEREFORE, the parties hereto do hereby agree as
follows: 1. LOAN. The Lender agrees to lend additional sums to the Borrower
consisting of (i) One Hundred Thousand and 00/100 Dollars ($100,000.00) advanced
at or prior to execution of this Modification Agreement, (ii) a deferral of
interest payments on all indebtedness under the Debenture on January 1, 1996,
February 1, 1996 and March 1, 1996 (such deferred interest to be added to
principal) and (iii) at the sole discretion of the Lender, additional sums, for
total current new advances (including deferred interest) up to a maximum of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) ("Current New
Advances"). The Lender shall have no obligation to make further advances at any
time after an event of default ("Event of Default") by the Borrower of any of
its obligations under the Loan Documents, but if and when the Lender
18397_1
- 2 -
<PAGE>
shall make additional advances (up to Current New Advances), the terms of
the Loan Documents, Mortgage and this Modification Agreement shall be applicable
to all such advances. 2. MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are
hereby modified and amended as follows: (a) Principal Amount of Loan. All
references to the sum One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00) in the Loan Documents and Mortgage shall be deleted in its
entirety and substituted in its place and stead shall be the sum of all advances
up to One Million Seven Hundred Fifty Thousand and 00/100 Dollars
($1,750,000.00). (b) Events of Default. The following shall constitute an
additional Event of Default under the Loan Documents: (i) The sum ("Borrowing
Base") of the following as of the last day of any month shall be less than Three
Million and 00/100 Dollars ($3,000,000.00): (a) Borrower's accounts receivables
and inventory, as carried on Borrower's books and records in accordance with
Borrower's customary accounting procedures consistently applied; (b) the amount
of any principal due Lender repaid subsequent to January 1, 1996; and
18397_1
- 3 -
<PAGE>
(c) any cash maintained as security for Lender in a segregated account
under terms satisfactory to Lender. (ii) Any default by Borrower of its
obligations under this Modification Agreement and any documents delivered in
conjunction therewith. (c) Remedies Upon Default. As a limitation on the
remedies upon default set forth in the Loan Documents, the Lender hereby agrees
it will not take action to enforce any remedy available to it for a period of
thirty (30) days after it has provided written notice of a declaration of
default unless such default is declared on account of bankruptcy, in which event
this provision shall not be applicable. (d) Additional Composite Modifications.
References in any Loan Document to the Debenture, Mortgage or Lending Agreement
shall be deemed to refer to respectively the Amended and Restated Debenture, the
Mortgage as modified by the Amended Mortgage and the Lending Agreement as
modified by this Modification Agreement. 3. CONTINUED VALIDITY OF ORIGINAL LOAN
DOCUMENTATION. Except as otherwise provided herein, the Loan Documents shall
continue in full force and effect, in accordance with their respective terms,
and the parties hereto hereby expressly ratify, confirm and reaffirm all of
their respective liabilities, obligations, duties and responsibilities under and
pursuant to the Loan Documents, as modified by this Modification Agreement,
18397_1
- 4 -
<PAGE>
and Borrower agrees that the same shall constitute valid and binding
agreements of Borrower, enforceable in accordance with their respective terms.
4. MODIFICATION AGREEMENT CONTROLS. In the event of a conflict between the terms
and conditions of this Modification Agreement and the terms and conditions of
the Loan Documents, the terms and conditions of this Modification Agreement
shall control. 5. NO NOVATION. This Modification Agreement does not represent
new indebtedness (except to the extent of the Current New Advances) and does not
in any way represent satisfaction of the indebtedness. It is the intention of
the parties hereto that this Modification Agreement shall not constitute a
novation and shall in no way adversely affect or impair the lien priority of the
Mortgage, the Security Agreement or any other instrument securing the Loan. 6.
REPAYMENT OF CURRENT NEW ADVANCES. This Modification Agreement and the documents
executed in conjunction therewith shall be deemed null and void if the Borrower
repays the Current New Advances within thirty (30) days of the date first
written above. 7. ADDITIONAL DELIVERIES. Borrower is delivering to Lender
simultaneously herewith a substitute Amended and Restated Debenture and
Amendment to Mortgage.The T-Partnership shall return to Borrower within 45 days
of the date of this Modification Agreement the Debenture.
18397_1
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Modification Agreement
as of the date first above written. ELECTRO-CATHETER CORPORATION
By:/s/Ervin Schoenblum
Ervin Schoenblum,
Acting President
THE T PARTNERSHIP
By:/s/ A. H. Nechemie
Partner
18397_1
- 6 -
<PAGE>
AMENDMENT TO MORTGAGE
THIS AMENDMENT TO MORTGAGE ("Amendment"), made as of the 1st day of
January, 1996, by and between ELECTRO-CATHETER CORPORATION, a New Jersey
corporation, with offices at 2100 Felver Court, Rahway, New Jersey 07065 (the
"Mortgagor"), and THE T PARTNERSHIP with offices c/o Wiss & Company, 345
Eisenhower Parkway, Livingston, New Jersey 07039 (the "Mortgagee"),
WITNESSETH:
WHEREAS, the Mortgagee is the holder of a certain Debenture (the
"Debenture") dated August 31, 1995, issued by the Mortgagor to the Mortgagee in
the principal amount of One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00) (the "Loan"); and
WHEREAS, the Debenture is secured by a Mortgage (the "Mortgage") dated
October 31, 1995, which Mortgage is a first lien mortgage on Mortgagor's real
property located in the City of Rahway, County of Union, State of New Jersey,
commonly known and designated as 2100 Felver Court (the "Mortgaged Premises");
and
WHEREAS, the Debenture is further secured by a Security Agreement (the
"Security Agreement") dated as of August 31, 1995; and
WHEREAS, the Mortgagor has requested the Mortgagee advance additional sums,
and otherwise modify the Debenture and Mortgage; and
WHEREAS, the Mortgagee is willing to advance additional sums to the
Mortgagor, and otherwise modify the Debenture on certain terms and conditions as
provided in the Amended and Restated Debenture dated January 1, 1996 and modify
the Mortgage on certain terms and conditions as hereinafter provided.
NOW, THEREFORE, for and in consideration of the Mortgaged Premises (which
are deemed herein contained) and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. PRINCIPAL AMOUNT OF LOAN.
The Mortgagor acknowledges that it may receive advances under the Amended
and Restated Debenture up to the sum of One Million Seven Hundred Fifty Thousand
and 00/100 Dollars ($1,750,000.00). The Mortgagor hereby represents, warrants
- 7 -
<PAGE>
and confirms that there are no set-offs, rights, claims or causes of action of
any nature whatsoever which the Mortgagor has or may assert against the
Mortgagee with respect to the Debenture, the Mortgage or the other Loan
Documents.
2. MODIFICATION OF MORTGAGE.
The Mortgage is hereby modified and amended as follows:
(a) Principal Amount of Loan. All references to the sum One Million Five
Hundred Thousand and 00/100 Dollars ($1,500,000.00) in the Mortgage shall be
deleted in its entirety and substituted in its place and stead shall be the sum
of all advances made by Mortgagee to Mortgagor up to One Million Seven Hundred
Fifty Thousand and 00/100 Dollars ($1,750,000.00).
(b) Debenture. References in the Mortgage to the Debenture shall be deemed
references to the Amended and Restated Debenture dated January 1, 1996.
(c) Events of Default. The following shall constitute additional Events of
Default under the Mortgage:
(i) The default by Mortgagor of any obligation under the Amended
and Restated Debenture dated January 1, 1996.
(ii) The sum ("Borrowing Base") of the following as of the last day of
any month shall be less than Three Million and 00/100 Dollars ($3,000,000.00):
(a) Mortgagor's accounts receivables and inventory, as carried
on Mortgagor's books and records in accordance with Mortgagor's customary
accounting procedures consistently applied;
(b) the amount of any principal due Mortgagee repaid subsequent
to January 1, 1996; and
(c) any cash maintained as security for Mortgagee in a segregated
account under terms satisfactory to Mortgagee.
(iii) Any default by Mortgagor of its obligations under this Amendment
and any documents delivered in conjunction therewith.
- 8 -
<PAGE>
(c) Remedies Upon Default. As a limitation on the remedies upon default set
forth in the Mortgage, the Mortgagee hereby agrees it will not take action to
enforce any remedy available to it for a period of thirty (30) days after it has
provided written notice of a declaration of default unless such default is
declared on account of bankruptcy, in which event this provision shall not be
applicable.
3. CONTINUED VALIDITY OF ORIGINAL LOAN DOCUMENTATION.
Except as otherwise provided herein, the Mortgage shall continue in full
force and effect, in accordance with its respective terms, and the parties
hereto hereby expressly ratify, confirm and reaffirm all of their respective
liabilities, obligations, duties and responsibilities under and pursuant to the
Mortgage, as modified by this Amendment, and Mortgagor agrees that the same
shall constitute valid and binding agreements of Mortgagor, enforceable in
accordance with its respective terms.
4. AMENDMENT CONTROLS.
In the event of a conflict between the terms and conditions of this
Amendment and the terms and conditions of the Mortgage, the terms and conditions
of this Amendment shall control.
5. NO NOVATION.
This Amendment does not represent new indebtedness (except to the extent of
the Current New Advances as such term in defined in the Composite Modification
Agreement) and does not in any way represent satisfaction of the indebtedness.
It is the intention of the parties hereto that this Amendment shall not
constitute a novation and shall in no way adversely affect or impair the lien
priority of the Mortgage, the Security Agreement or any other instrument
securing the Loan.
6. REPAYMENT OF CURRENT NEW ADVANCES.
This Amendment and the documents executed in conjunction therewith shall be
deemed null and void if the Mortgagor repays the Current New Advances within
thirty (30) days of the date first written above.
7. ADDITIONAL DELIVERIES.
Mortgagor is delivering to Mortgagee simultaneously herewith a Composite
Modification Agreement and a substitute Amended and Restated Debenture.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
WITNESS: MORTGAGOR:
ELECTRO-CATHETER CORPORATION
/s/Arlene C. Bell /s/ Ervin Schoenblum
Ervin Schoenblum,
Acting President
ATTEST: MORTGAGEE:
THE T PARTNERSHIP
_________________________ By: /s/ A. H. Nechemie
Partner
- 10 -
<PAGE>
ELECTRO-CATHETER CORPORATION
12% AMENDED AND RESTATED DEBENTURE DUE AUGUST 1, 2001
Date of Issuance: January 1, 1996
$1,750,000
ELECTRO-CATHETER CORPORATION, a New Jersey corporation, (hereinafter called
the "Company"), for value received, promises to pay to THE T PARTNERSHIP or
registered assigns (the "Registered Holder" hereof) on August 1, 2001 (the
"Maturity Date") at the offices of the Company, the principal amount of all
advances made by The T Partnership to the Company up to One Million Seven
Hundred Fifty Thousand and 00/100 Dollars ($1,750,000) (less any amount
theretofore repaid pursuant to (ii) below) in lawful money of the United States
of America, and to pay at the offices of The T Partnership in like money (i)
interest (computed on the basis of a thirty (30) day month, three hundred and
sixty (360) day year) on the unpaid principal amount from the date of the
advance at a rate of twelve percent (12%) per annum, payable on the first day of
each month in arrears (the "Payment Date(s)") until the principal hereof is
paid, and (ii) principal, in installments of Twenty-Five Thousand and 00/100
Dollars ($25,000.00) on the first day of each month commencing September 1, 1996
until August 1, 2001, at which time all remaining principal and interest shall
be repaid in full.
This Amended and Restated Debenture has been issued pursuant to a Lending
Agreement (the "Loan Agreement") dated as of August 31, 1995 between the Company
and The T Partnership and a Composite Modification Agreement ("Modification
Agreement") dated as of January 1, 1996 between the Company and The T
Partnership.
This Amended and Restated Debenture is registered as to both principal and
interest at the principal office of the Company.
This Amended and Restated Debenture is further subject to the following
provisions.
1. Interest and Principal. Interest and principal (when due) on the Amended
and Restated Debenture shall be payable on each Payment Date to the Registered
Holder of this Amended and Restated Debenture as of the close of business on the
day immediately preceding each Interest Payment Date.
2. Transfer; Exchange. The Registered Holder may transfer this Amended and
Restated Debenture upon surrender of this Amended and Restated Debenture at the
principal office of the Company, and, in such event, the Company shall execute
and deliver, in the name of the designated transferee or transferees, one or
more new Debentures of any authorized denominations, of a like aggregate
principal amount. The foregoing notwithstanding, the Company shall have no
<PAGE>
obligation to transfer this Amended and Restated Debenture on its books, and
shall not do so, unless it shall have received evidence satisfactory to counsel
for the Company that the transfer will not violate the Securities Act of 1933,
as amended, or any of the rules and regulations promulgated thereunder, or the
securities laws of any state.
At the option of the Registered Holder, the Debenture(s) may be exchanged
for other Debentures of any authorized denominations, of a like aggregate
principal amount, upon surrender of the Debentures to be exchanged at the
principal office of the Company. Whenever any Debentures are so surrendered for
exchange, the Company shall execute and deliver the Debentures which the
Registered Holder is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits as the Debentures surrendered upon such
registration of transfer or exchange.
Every Debenture presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company, duly executed by the Registered Holder thereof or his attorney duly
authorized in writing.
No service charge will be made for any registration of transfer or exchange
of Debentures, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Debentures.
Prior to due presentment of a Debenture for registration of transfer, the
Company, and any agent of the Company may treat the Person in whose name such
Debenture is registered as the owner of such Debenture for the purpose of
receiving payment of principal of (and premium, if any) and interest on such
Debenture and for all other purposes whatsoever, whether or not such Debenture
be overdue, and neither the Company nor any agent of the company shall be
affected by notice to the contrary.
3. Remedies.
3.1 Events of Default. "Event of Default", wherever used in this
Amended and Restated Debenture, means any one of the following events:
(a) default in the payment of any installment of interest
upon this Amended and Restated Debenture on any Payment Date, and continuance
of uch default for a period of fifteen (15) days; or
- 2 -
<PAGE>
(b) failure to pay the principal on the Debenture(s) when
due and continuance of such default for a period of fifteen (15) days; or
(c) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company (including
obligations under leases required to be capitalized on the balance sheet of the
lessee under generally accepted accounting principles but not including any
indebtedness or obligation for which recourse is limited to property purchased)
in an aggregate principal amount in excess of Three Hundred Thousand and 00/100
Dollars ($300,000.00) or under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company (including such leases but not
including such indebtedness or obligation for which recourse is limited to
property purchased) in an aggregate principal amount in excess of Three Hundred
Thousand and 00/100 Dollars ($300,000.00) by the Company, whether such indebted-
ness now exists or shall hereafter be created, which default shall have resulted
in such indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable or such obligations
being accelerated, without such acceleration having been rescinded or annulled
within a period of thirty (30) days after there shall have been given, by
registered or certified mail, to the Company by Registered Holders of at least
fifty percent (50%) of the principal amount of the Debentures a written notice
specifying such default and requiring the Company to cause such acceleration to
be rescinded or annulled and stating that such notice is a "Notice of Default"
hereunder; or
(d) the sum of the following as of the last day of any month
shall be less than Three Million and 00/100 Dollars ($3,000,000.00):
(i) Borrower's accounts receivables and inventory, as
carried on Borrower's books and records in accordance
with Borrower's customary accounting procedures
consistently applied;
(ii) the amount of any principal due Lender repaid
subsequent to January 1, 1996; and
(iii) any cash maintained as security for Lender in a
segregated account under terms satisfactory to
Lender.
(e) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company a
bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment
- 3 -
<PAGE>
or composition of or in respect of the Company, under
Federal bankruptcy law, as now or hereafter constituted,
or any other applicable Federal or State bankruptcy,
insolvency or other similar law, or appointing a receiver,
liquidator, trustee, or other similar official of the
Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; or
(f) the commencement by the Company of a voluntary case under
Federal bankruptcy law, as now or hereafter constituted,
or any other applicable Federal or State bankruptcy,
insolvency, or other similar law, or the consent by it to
the institution or bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under Federal
bankruptcy law or any other applicable Federal or State
law, or the consent by it to the filing of such petition
or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company
or of any substantial part of its property, or the making
by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such
action; or
(g) an Event of Default, as defined in the Loan Agreement and
the Modification Agreement.
3.2 Acceleration of Maturity: Rescission and Annulment. If an
Event of Default occurs and is continuing, then and in every such case the
Registered Holders of not less than fifty percent (50%) of the principal
amount of the Debentures may declare the principal of all the Debentures to be
due and payable immediately, by notice in writing to the Company and upon any
such declaration such principal shall become immediately due and payable.
At any time after such a declaration of acceleration has
been made and before a judgment or decree for payment of the money due has been
obtained, the Registered Holders of a majority of the principal amount of the
Debentures, by written notice to the Company, may rescind and annul such
declaration and its consequences. No such rescission shall affect any subsequent
default or impair any right consequent thereon.
3.3 Limitation on Remedies. As a limitation on the remedies
upon default set forth herein, the Registered Holder may not take action to
enforce any remedy available to the Registered Holder for a period of thirty
(30) days after the Registered Holder has provided written notice of a
declaration of default unless such default is declared on account of bankruptcy,
in which event this provision shall not be applicable.
- 4 -
<PAGE>
3.4 Delay or Omission Not Waiver. No delay or omission of the
Registered Holder to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or any acquiescence therein. Every right and remedy given by
this Section or by law to the Registered Holder may be exercised from time to
time, and as often as may be deemed expedient.
3.5 No Recourse. No recourse shall be had for the payment of
the principal of or the interest on, this Amended and Restated Debenture, or any
part hereof, or for any claim based hereon or otherwise in respect hereof or of
the indebtedness represented hereby against any incorporator, stockholder,
officer or director, as such, past present or future, of the Company, either
directly or through the Company, whether by virtue of any constitutional
provision, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise.
4. Covenants.
4.1 Payment of Principal, Premium and Interest. The Company will
duly and punctually pay the principal of and interest on the Debentures in
accordance with the terms of the Debentures.
4.2 Maintenance of Office or Agency. The principal office of the
Company on the Date of Issuance hereof is located at 2100 Felver Court, Rahway,
New Jersey 07065. The Company will give prompt written notice to the Registered
Holder of any change in the location of its principal offices.
The Company may also from time to time designate one or more
other offices where the Debenture(s) may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Registered Holder of any such
designation or rescission and of any change in the location of any such office.
4.3 Company Existence. The Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, rights (statutory and other) and franchises; provided, however, that
the Company shall not be required to preserve any such right or franchise if the
Board of Directors of the Company shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and the
loss thereof is not disadvantageous in any material respect to the Registered
Holder.
5. Prepayment.
5.1 The Company may prepay this Amended and Restated Debenture
in whole or in part at any time.
- 5 -
<PAGE>
5.2 The Company shall prepay this Amended and Restated Debenture
in the event that either:
(i) the Company is merged into or consolidated with another
corporation, or
(ii) the Company sells all or substantially all of its
assets.
6. Miscellaneous.
6.1 Notice to the Company. For purposes of this Amended and
Restated Debenture, notice of the events contemplated herein to be given by the
Registered Holder shall be deemed given if sent in writing by certified mail,
return receipt requested, to the Company at its principal office as follows,
unless otherwise designated by the Company:
Electro-Catheter Corporation
2100 Felver Court
Rahway, New Jersey 07065
6.2 Notice to Registered Holder. When this Amended and Restated
Debenture provides for notice to the Registered Holder of any event, such notice
shall be sufficiently given if in writing and mailed, first-class postage
prepaid, to the Holder, at such Holders address as it appears in the Debenture
Register (initially c/o Fred Lafer, 433 Hackensack Avenue, 6th Floor,
Hackensack, New Jersey 07601), not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holder is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders.
6.3 Governing Law. This Amended and Restated Debenture shall be
governed by and construed in accordance with the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
ELECTRO-CATHETER CORPORATION
By: /s/Ervin Schoenblum
--------------------
Ervin Schoenblum,
Acting President
Attest:
/s/Arlene Bell
- --------------
Arlene Bell, Secretary
- 6 -
Exhibit 24
Independent Auditors' Consent
The Board of Directors
Electro-Catheter Corporation:
We consent to incorporation by reference in the Registration Statement
(No.33-56016) on Form S-8 of Electro-Catheter Corporation of our report dated
November 7, 1996 except as to the third paragraph of Note 7, which is as of
December 16, 1996, relating to the balance sheets of Electro-Catheter
Corporation as of August 31, 1996 and 1995, and the related statements of
operations, stockholders' equity and cash flows and related financial statement
schedules for each of the years in the three-year period ended August 31, 1996,
which report appears in the August 31, 1996 annual report on Form 10-K of
Electro-Catheter Corporation.
KPMG Peat Marwick LLP
Short Hills, New Jersey
December 16, 1996
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